# Factory Overheads

## Definition

Factory Overheads are any material, labour, or expense not directly related to the product but still used in making the product IN THE FACTORY.

## Important Note

> Factory Overheads are charged on the basis of NUMBER OF UNITS PRODUCED (not units sold).

## Examples of Factory Overheads

#	Item	#	Item
(i)	Stores & spares (like oil)	(ii)	Depreciation of Plant
(iii)	Insurance of Plant	(iv)	Repairs & Maintenance of Plant
(v)	Design dept in Factory	(vi)	Rent of Factory Assets
(vii)	Supervisor cost	(viii)	Amortised cost of Jigs/tools
(ix)	Tool Room	(x)	Pollution Control Equipment

## Key Identification Rules

Must relate to the factory, not office or sales.
Must be indirect (cannot be directly traced to a single product).
Includes indirect material, indirect labour, and indirect expenses incurred in the factory.

Worked example

### Example 1

Example: Identify Factory Overheads from the following:

Total Factory OH = 50,000 + 3,000 + 25,000 = ₹78,000

⚠️ Common exam mistakes

Charging factory OH on units sold instead of units produced.
Including office expenses as factory OH.
Mixing depreciation of office building with depreciation of plant — plant depreciation is Factory OH; office is Admin OH.
Treating supervisor salary as direct labour (it is indirect labour → Factory OH).

Reference:

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Factory Overheads (Production Overheads)

Worked example